IFR Magazine – June 08, 2019

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EMERGING MARKETS ASIA-PACIFIC

South Korean issuers join ESG crowd

„ PRIMARY MARKETS Proposed deals mark latest step to diversify Asian bond market

South Korean bond issuers are preparing to

add welcome depth to the Asian market for

environmentally and socially responsible bonds.

The South Korean sovereign has mandated

banks for a proposed socially responsible US

dollar bond issue, while state-owned KOREA GAS

and blue-chip steelmaker POSCO have hired for

Sustainable dollar bonds.

The REPUBLIC OF KOREA (Aa2/AA/AA–) will start

meetings in London and New York on Monday for

a US dollar-denominated dual-tranche offering

of Green, Sustainability and/or regular bonds via

Citigroup, Credit Agricole, JP Morgan and HSBC,

with the deal expected in late June.

Korea Gas, rated Aa2/AA–/AA–, begins

investor meetings in Asia, Europe and the

US from Monday via Bank of America Merrill

Lynch, BNP Paribas, Citigroup, HSBC and Korea

Development Bank for a US dollar-denominated

144A/Reg S Sustainability bond with a short to

intermediate maturity.

Posco, rated Baa1/BBB+ (Moody’s/S&P), is

also lining up its first US dollar-denominated

Sustainability bond issue. Bank of America

Merrill Lynch, BNP Paribas, HSBC and Standard

Chartered will be arranging investor meetings

in Asia, Europe and the US from June 12 for the

proposed 144A/Reg S notes.

Kogas has set the use of proceeds for its

upcoming issue to fund projects in areas such

as renewable energy, low carbon initiatives,

green buildings and social projects related to

job creation, as well as to help underprivileged

target groups in support of the UN Sustainable

Development Goals. Sustainalytics has provided

a second-party opinion.

Posco’s sustainability programme is aimed

at implementing socially responsible business

practices and minimising their impact on the

environment. The company said on its website

that it is building an integrated environmental

management system to help drive effective

leadership with a low carbon footprint.

The proposed transactions come as South

Korea is working to meet the SDGs, which

include efforts to reduce poverty, reduce

greenhouse gas emissions and promote income

equality. Indicators show minimal improvement

since the SDGs were launched in 2015.

South Korea’s environmental policies ranked

poorly in the 2018 Sustainable Governance

Indicators report, at 36th out of 41 countries

surveyed.

“The country remains an unsustainable growth-

first and car-first society. Environmental problems

are serious, particularly with regard to air quality,

though much of this stems from Chinese sources,”

said the SGI report, which is published by German

think tank Bertelsmann Stiftung.

South Korea ratified the Paris Agreement and

has launched several programmes to reduce

emissions, but has fallen behind with regard to

climate-protection obligations. It is the world’s

seventh-largest emitter of carbon dioxide, said

the report.

“There’s a big push within the government for

this type of issuance, and corporates and quasi-

sovereigns will continue to follow,” said a banker

on one of the deals.

ASIAN ISSUE PLANS

The South Korean deals come as market

participants mull how to add breadth and depth

to the Asian ESG bond market.

The IFC last week announced the launch of a

new fund, the Real Economy Green Investment

Opportunity Fund, in partnership with HSBC

Global Asset Management, which aims to

promote Green bond issuance from emerging

market issuers outside the financial sector.

Green bond issuance from Asia-Pacific

stood at US$48bn last year, of which US$31bn

came from China, according to the Climate

Bonds Initiative. A research paper by DBS and

the United Nations Environment Programme

in 2017, however, estimated that the ASEAN

region alone would need US$200bn in green

investment annually until 2030.

Speakers at the Innovate4Climate

conference in Singapore last week had ideas on

opportunities for issuance from new sectors.

“I think the Belt and Road initiative could

really thrive if there was a green element to it,”

said Virginie Maisonneuve, chief investment

officer at Eastspring Investments.

ICBC Singapore in April sold the first Green

bonds linked to China’s Belt and Road initiative,

a US$2.2bn issue in three currencies.

Ed Francisco, president of investment banking

at BDO Capital, suggested that a change to

Philippine lending quotas could encourage

Green bond issuance from the property sector.

Philippine banks have to keep their property

exposure to a maximum of 20% of their total

loans under central bank rules.

“If Green bonds or loans can be taken out of

that cap, that will help us to lend more to the

real estate sector,” said Francisco.

Asian regulators are striving to encourage ESG

bond issuance. In 2017, the Monetary Authority of

Singapore launched a grant scheme to promote

Green bond issuance by allowing issuers to claim

back some of the expenses involved.

While the take-up from issuers was lacklustre,

in February this year the MAS expanded the

scheme to include Social and Sustainability

bonds, too, reduced the minimum issue size for

eligibility, and extended the life of the scheme to

May 2023.

Frances Yoon, Daniel Stanton